Moog Inc

NYSE:MOG.A

Earnings Call Transcript 2021-Q3

[Operator]

Good day, and welcome to the Moog Third Quarter FY 2021 Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Ann Luhr. Please go ahead.

[Ann Luhr, Head of HR]

Good morning. Before we begin, we call your attention to the fact that we may make forward-looking statements during the course of this conference call. These forward-looking statements are not guarantees of our future performance and are subject to risks, uncertainties and other factors that could cause actual performance to differ materially from such statements. A description of these risks, uncertainties and other factors is contained in our news release of July 30, 2021, our most recent Form 8-K filed on July 30, 2021, and in certain of our other public filings with the SEC. We've provided some financial schedules to help our listeners better follow along with the prepared comments. For those of you who do not already have the document, a copy of today's financial presentation is available on our Investor Relations webcast page via www.moog.com. John?

[John Scannell, Chairman & CEO]

Thanks, Ann. Good morning, and thanks for joining us. This morning, we'll report on the third quarter of fiscal '21 and affirm our guidance for the full year. Overall, it was a relatively quiet quarter with the business performing pretty much to plan. I'll follow my usual format today, starting with the headlines under the 3 headings of macroeconomic factors, market trends and Moog's specific items.

The macroeconomic factors affecting our business have not changed markedly over the last quarter, although the state of play has evolved. Vaccines have become widely available in the developed world, facilitating a partial return to pre-COVID behaviors. As a result, economic activity is picking up across most major markets. However, the emergence of the Delta variant combined with vaccine hesitancy in large portions of the population give reason to remain vigilant and a reminder that the dangers of COVID are far from over.

In the U.S., federal spending on COVID relief, infrastructure and green initiatives will set the budget tone for several years to come. Higher taxes and potentially more constrained defense budgets seem inevitable. Supply chains continue to tighten for a range of commodities with electronics topping the list. Finally, inflation is reported to be transitory, although the experience at both the business and personal level would suggest it could be longer lasting than the Federal Reserve is projecting.

Turning to our major markets. All 5 markets continue to perform pretty much in line with expectations. Government spending on defense remains strong. Commercial air traffic has recovered nicely over the last 90 days with domestic travel leading the way, while international travel has remained muted. Capital spending on industrial automation has accelerated as companies scramble to build capacity to meet burgeoning demand. The space market remains very exciting with billionaires floating in zero gravity and investors piling in to specs with valuations firmly anchored in outer space. Finally, medical markets have returned to a more normal situation post COVID.

On the home front, it was a solid quarter for the business. Earnings were in line with our April forecast and cash flow was strong. Remember, the Q3 last year was the first full quarter of COVID and we incurred $56 million of restructuring and impairment charges. In our text today, comparisons are to adjusted Q3 FY '20 numbers, excluding these charges. Sales this quarter were up 8% from last year, primarily driven by stronger commercial aircraft and space results. Earnings per share were up 20% from the adjusted numbers last year, and free cash flow conversion was almost 175%.

We started to see our employees return to the office, particularly in the U.S., and we're developing our plans for future flexible working. We believe the future of work will be different from the past, and the companies that provide flexibility can gain both a productivity and talent advantage.

The supply chain for various commodities is an increasing concern. To date, we've managed through the challenges and not yet experienced any significant disruption in our operations. It will, however, remain a watch item for the coming quarters. With 3 quarters in the bank, we're tweaking our sales forecast through the end of the fiscal year and keeping our earnings per share forecast unchanged. All in all, steady as she goes.

Now let me move to the details, starting with the first quarter results. Sales in the quarter of $707 million were 8% higher than last year. Sales were higher in all 3 segments and up across all major markets with the exception of medical. In the medical market, our business remained strong, but sales have moderated from the surge in demand we saw this time last year.

Taking a look at the P&L, gross margin was up slightly from an adjusted number last year on the higher sales and positive impact of last year's restructuring activities. R&D with the results was up as a result of the Genesys acquisition and slightly higher investments in our industrial business. SG&A was down as a percentage of sales. Interest expense was lower on reduced debt levels at lower rates. The effective tax rate this quarter was 25.7%, resulting in net income of $36 million and earnings per share of $1.12, up 19% and 20%, respectively, from the adjusted numbers last year.

Fiscal '21 outlook. With 3 quarters behind us, we're on track to meet our full year EPS guidance of $5 per share, plus or minus $0.15. Relative to our outlook at the end of Q2, we're forecasting slightly lower sales in our military aircraft market and slightly higher sales in our industrial markets. Taken all together, we're expecting full year sales of $2.82 billion, down marginally from our forecast of 90 days ago and slightly higher margins to achieve our $5 per share projection.

Now to the segments. I'd remind our listeners that we provided a 3-page supplemental data package posted on our webcast site, which provides all the detailed numbers for your models. We suggest you follow this in parallel with the text. Starting with Aircraft. Sales in the third quarter of $272 million were 9% higher than last year. In each of the last 4 quarters, we've reported strong military sales compensating for lower commercial sales. This quarter, we saw a reversal in that pattern with higher commercial sales compensating from marginally lower military sales.

Comparing with the same quarter last year, military OEM sales continued their strong performance with sales up 19% from a year ago. Higher funded developments, combined with the acquired sales of Genesys made up half the increase with the remaining coming across a wide range of programs, both domestic and foreign. OEM sales on the F-35 were more or less in line with last year.

Similar to last quarter, the military aftermarket was down markedly from a very strong performance a year ago. The reductions were across a broad range of programs, including lower spares ordering on the F-35. We've seen a general slowdown in our military aftermarket over the last 4 quarters, which we believe is a result of our DOD customers working off a buildup of inventory in the early phases of COVID.

On the commercial side, OEM sales were up sharply from the low point of the pandemic last year. The majority of the increase is the result of acquired sales from our Genesys acquisition. Sales in both our wide-body and narrow-body programs are up marginally from last year. Remember that sales on these programs are accounted for under ASC 606 and are driven by a combination of orders from our customers, our internal build rate and the level of our inventory receipts. Each of these factors has moved significantly over the last year. But on a positive note, despite Boeing 787 delivery challenges, our internal build rates for our wide-bodies has been steady for several quarters now and reflects the stable demand profile from our customers.

The commercial aftermarket was up over 50% from a year ago. Last year's third quarter was the low point in the pandemic, and we've seen a nice recovery over the last 4 quarters across our complete aftermarket portfolio. On a sequential basis, Q3 sales were down about 10% from Q2 on weaker military and commercial OEM sales. Military aftermarket sales were in line while the commercial aftermarket was slightly higher. Margins in the quarter were 7.5%, up over 300 basis points from the adjusted margin last year. Margins were also up slightly on a sequential basis as our operations continue to improve despite the headwind of lower sales.

Aircraft fiscal '21. We're updating our forecast from 90 days ago to reflect our experience through 3 quarters. We're reducing our military forecast by $40 million, divided equally between the F-35 OEM and the military aftermarket. On the commercial side, we're keeping the total sales forecast unchanged and refining the mix, increasing the aftermarket by $10 million by reducing the OEM by the same amount. Taken altogether, we're forecasting full year sales of $1.14 billion, down 5% from fiscal '20. Despite the lower sales forecast, we're increasing our full year operating profit marginally, yielding full year margins of 8.6%.

Turning now to Space and Defense. Sales in the quarter of $205 million were 11% higher than last year. This quarter, we enjoyed nice growth in both the Space and Defense markets. The space business continued its strong performance over the last few years. The sales increase in Q3 was fueled by the initial activity on the NASA VIPER program, higher avionics sales and continued growth in our integrated space vehicles product line.

Defense sales were up from a relatively weak quarter a year ago. Q3 sales of $119 million were 8% higher than last year. We saw sales increases on vehicle and naval applications as well as in our Components business across a broad range of platforms. Sales of missiles added to security applications were lower. Sales in the quarter were more or less in line with the average quarterly sales of the last 10 quarters.

Space and Defense margins. Margins in the quarter were 10.4%. This margin performance is down from the results we've enjoyed over the last few years. In the quarter, we experienced cost growth on some of our space development programs which depressed margins by about 200 basis points. More generally, we're seeing a shift to more funded development work in this business, a positive trend, which bodes well for the long term, but tends to depress margins in the shorter term.

Space and Defense fiscal '21. We're leaving our full year sales projection unchanged at $795 million. We're also leaving the mix between Space and Defense unchanged. Given the lower margin in Q3 and the continued mix shift to fund the development work, we're moderating our full year margins outlook to 11.8%.

Turning now to Industrial Systems. Sales in the quarter of $230 million were 3% higher than last year. All of the gain was from foreign exchange movements and real sales were actually down about 1%. This quarter, we saw significant shifts in 2 markets. Sales into industrial automation were up nicely, while sales in the medical applications were down. Energy and simulation and test sales were more or less in line with last year.

Starting with industrial automation. The post-pandemic GDP recovery across much of the globe is fueling investments in capital equipment. This recovery has been much faster than typical historical cycles and is creating shortages in many product categories. As a result, companies across a range of industries are scrambling to expand production capacity, and the resulting increase in capital investment is fueling stronger orders for our automation components.

This increase in industrial automation is being mirrored by a decrease in our Medical business. Last year, we saw a huge increase in orders for our medical pumps and components as health care providers rushed to acquire equipment to meet the demands of COVID. This COVID-driven demand surge has now passed, and our sales have settled back down to a more normal run rate. In our energy markets, our sales level has been pretty stable for a couple of years as oil prices have averaged around $60 per barrel.

Finally, our simulation and test business saw stronger test sales compensating for weaker flight simulation sales. We've not yet seen a rebound in our flight simulation business despite the recovery in air traffic over the last few quarters. For all of fiscal '21, we estimate that our flight simulation business will be down 40% from our fiscal '19 total. Margins in the quarter were 10%, up 90 basis points from adjusted margins last year.

Industrial Systems fiscal '21. For the full year, we're increasing our sales projection by $15 million from last quarter to use full year sales of $880 million. The additional sales are all in our industrial automation markets, reflecting the continued strength we're seeing in this business. We're keeping our projection for full year margins unchanged at 10%.

Summary guidance. As we enter the last quarter of our fiscal year, we're on track to meet our EPS guidance of $5 per share. We're looking forward to bringing more of our employees back to the workplace and rebuilding relationships with our customers and suppliers with in-person meetings. We're adopting a flexible approach to working, which will allow for a smooth transition from COVID conditions to a future which better meets both the needs of the business and the interest of our employees.

Economic activity across the globe is strengthening, giving us confidence for the future. However, the spread of the Delta variant remains a real concern and could force us to take a step back on our reopening plans at any time. In addition, both inflation and supply chain constraints will be watch items for the coming quarters. For now, we believe these risks are muted and that our business will continue to perform well.

Looking at our fiscal '21 forecast by our 5 end markets clearly shows the impact of the pandemic over the last 2 years. Through the pandemic, we've described our markets in the following terms. Defense, Space and Medical have been strong. Industrial has been pressured and commercial aircraft has been the hardest hit. The numbers bear this out.

Comparing fiscal '21 to our pre-COVID fiscal '19, we see total sales are down only 3%. However, our mix has moved significantly. Over this 2-year period, Defense went from 37% of sales to 44%, and Space went from 8% to 12%. Medical is up 1 percentage point to 9%, while Industrial is down from 24% to 22%. And commercial aircraft is down 10 percentage points to only 13%. We've managed successfully through this transition and look to further recovery in both industrial and commercial aircraft as we move into fiscal '22.

Turning now to capital allocation. We continue to invest in organic growth opportunities and pursue acquisitions which meet our interests. The M&A market has become much more active over the last few quarters, and we've looked at many more deals than a year ago. We're not sure if the risk profile of acquisition targets has changed materially from a few years back, but free money and the hunt for yield have changed the prices dramatically. We remain cautious in our assessment of value and as a result, find ourselves walking away from many deals. We'll continue to look, but we're also comfortable that we have alternative options for allocating capital to create long-term shareholder value.

For full year fiscal '21, we're forecasting sales of $2.82 billion, down $25 million from 90 days ago on lower military after aircraft activity. We're forecasting earnings per share of $5 at the midpoint of our range, unchanged from 90 days ago. This results in earnings per share in the fourth quarter of $1.20 plus or minus $0.15. Our range of plus or minus $0.15 is slightly higher than our pre-COVID norm and reflects the continued uncertainty around the Delta variant, supply chain disruption and the threat of inflation. Overall, we're feeling good about the year and looking forward to providing guidance on fiscal '22 in our next earnings call.

Now let me pass it to Jennifer, who'll provide more color on our cash flow and balance sheet.

[Jennifer Walter, VP & CFO]

Thank you, John. Good morning, everyone. We had an excellent quarter from a free cash flow standpoint, with free cash flow of $63 million and conversion of about 175%. That compares to another standout quarter a year ago when free cash flow is $90 million. Our third quarter last year marked our first full quarter managing through the pandemic, and we were incredibly focused on preserving cash and ensuring that we have sufficient liquidity to manage through the uncertain times ahead. Year-to-date, in 2021, our free cash flow conversion is nicely over 100%.

The $63 million of free cash flow in Q3 compares with a decrease in our net debt of $47 million. During the third quarter, we paid our quarterly dividend and repurchased some shares. Net working capital, excluding cash and debt, as a percentage of sales at the end of Q3 was 29.2% compared to 30.5% a quarter ago.

Receivables decreased due to strong collections, including a benefit associated with timing. At the end of the second quarter, receivables were elevated. Key customers in our commercial aircraft business slowed payments, and we had unusually strong industrial shipments late in the second quarter. We collected on all of our receivables this quarter and did not have similar circumstances affecting timing at the end of our third quarter.

Capital expenditures in the third quarter were $31 million, up from $20 million in the first quarter and lower than the $38 million in the second quarter. Our levels of capital spend naturally fluctuate from quarter-to-quarter and are also affected by specific drivers. We are now catching up on capital investments that was delayed during [indiscernible]. In addition, we are consolidating some of our operations into new facilities to reduce our footprint over time.

At quarter end, our net debt was $828 million, including $92 million of cash. The major components of our debt were $500 million of senior notes, $363 million of borrowings on our U.S. revolving credit facilities and $56 million outstanding on our securitization facility. We have $705 million of unused borrowing capacity on our U.S. revolving credit facility. Our ability to draw on the unused balance is limited by our leverage covenant, which is a maximum of 4.0x on a net debt basis. Based on our leverage, we could have incurred an additional $541 million of net debt as of the end of our third quarter. We are confident that our existing facilities provide us with the flexibility to invest in our future.

Cash contributions to our global retirement plans totaled $15 million in the quarter compared to $12 million in the third quarter of 2020. Contributions have increased for our defined contribution plan. In the U.S., participations have increased in our defined contribution plan as our defined benefit plan remains closed to new participants. Global retirement plan expense in the third quarter was $19 million, down from $21 million in the third quarter of 2020. This decrease reflects last year's settlement of about half of the liability for our largest defined benefit plan.

Our effective tax rate was 25.7% in the third quarter compared to 6.9%, excluding charges associated with the pandemic in the same period a year ago. This year's rate includes charges associated with the revaluation of deferred tax liabilities in the U.K. mostly offset by adjustments to last year's provision in the U.S. Last year's third quarter rate was relatively low. It reflects foreign tax credit utilization associated with the prior year tax return filing. In addition, the rate was affected by a low earnings before income taxes base.

We expect free cash flow generation in 2021 to be in line with our long-term target of 100% conversion. We expect capital expenditures in 2021 to be $130 million and depreciation and amortization to be $90 million. Our leverage ratio was 2.4x on a net debt basis as of the end of the third quarter, the same as a year ago. Very strong cash generation was offset by the pressures on EBITDA from the impacts of the pandemic, as well as capital allocated towards acquisitions and share repurchases. Our leverage ratio continues to be within our target zone of 2.25 to 2.75x.

Our strong financial situation positions us well to invest and deploy our capital. Funding organic growth is particularly attractive right now, especially considering the pricing we're seeing on the M&A front. We are continuing to explore opportunities to complete strategic acquisitions and return capital to shareholders.

With that, we'll turn it back to John for any questions you may have.

[John Scannell, Chairman & CEO]

Thanks, Jennifer. Carrie, we are open for questions now, please, if you would set it up. Thank you.

[Operator]

[Operator Instructions] Our first question comes from Cai von Rumohr with Cowen.

[Cai von Rumohr, Cowen]

So John, your R&D was up considerably in this quarter. Give us some color in terms of what that resulted from.

[John Scannell, Chairman & CEO]

So it's up a little bit sequentially, Cai. It's about $2 million or $3 million sequentially. It's up a little bit more from last year. And as we said in the text, and Jennifer mentioned, we are spending a little bit more on organic growth opportunities. We're seeing opportunities across a variety of the businesses. We called out a little bit in the past about our foray into EVs and some specialized equipment there that we think has growth potential for us.

And so we're starting to spend a little bit more on R&D. As I mentioned, the cost of acquisitions is difficult to justify unless there's a very strong strategic alignment. And so we think that investment in organic opportunities is probably a better use of shareholder capital at the moment. So it's a relatively small number in the scheme of things, but yes, it is up a little bit from a year ago.

The other piece that's there, Cai, is that we have the Genesys acquisition, which has added a couple of million dollars relative to a year ago. So a little bit of acquired R&D spend and then I'd say, selectively investing in some growth opportunities.

[Cai von Rumohr, Cowen]

Got it. And where do you expect that to be for the year?

[John Scannell, Chairman & CEO]

For the year, we're not changing it. It's kind of in that $120 million of quote. So it will actually -- we think it will drop off a little bit next quarter.

[Cai von Rumohr, Cowen]

Okay. Okay. And then if we look at your guide for the year by markets, it assumes that the test and simulation drops $10 million from this quarter to a level it's never seen -- like, almost never seen, a $15 million. Is that right? Or I mean, is there something weird happening there?

[John Scannell, Chairman & CEO]

I think what's happening in the -- so we've seen, as I mentioned in the text, the simulation business is very soft. And I mean it's surprisingly soft, given what you'd imagine is the comeback that we've seen in some of the other businesses. That may be a little bit low, Cai. We actually bumped up our forecast for the Industrial business by $15 million. We focused it more on the Industrial Automation side, that number may be a little bit light, but we're just not seeing any strength in it.

But part of what happens in the simulation and test business is that we have some large programs and you deliver them, it's oftentimes at the point of delivery, you take a lot of the expense and a lot of the sales. And so you see relatively large ships from one quarter to the next. So it does reflect the continued weakness on the flight simulation business, actually more or less in line with what we saw in the second quarter. So it's not dramatically different from what we've seen in the past. And we're just seeing softer sales in a variety of our test market.

So it may be a little bit low, but it's in the noise. I wouldn't get worked up about it. I think what's really the story is that the flight simulation business is 40% down from '19 at a time when we see our commercial aftermarket coming back quite strongly and the usage, particularly on the narrow bodies picking up. And so that's really being -- is a delayed response, I think, to the pickup. So that's not going to happen this year. Perhaps next year, we'll see a recovery in that.

[Cai von Rumohr, Cowen]

And just the last one, if you could give us some color on both the military aftermarket, do you see any signs that it will come back and on the commercial aftermarket?

[John Scannell, Chairman & CEO]

Yes. So the military aftermarket, as I described in the text, we had 2 quarters now where we did just under $50 million. And a year ago in Q2 and Q3, we would have $60 million and $70 million. So we were averaging kind of in the mid-60s. We've seen that soften, a little bit of it is the F-35. I think the sustainment budget has a lot of pressure there. And so we've seen a slowdown in spares ordering on the F-35 as Lockheed and the government starts to adjust perhaps some of their inventories.

But it's also much broader based. It's across a whole range of programs. And we believe, Cai, that at the start of COVID, we saw a surge to quarterly levels that we hadn't seen before. And that there was a buildup of inventory across our customers, and we're just starting to see some of that naturally unwind as the op tempo perhaps slows down a little bit. We do think there'll be a little bit of a recovery in the fourth quarter, but we have moderated the forecast for our military aircraft business, the aftermarket, by $20 million for the year. So that's a pretty big shift between just the last 2 quarters of the year. So that's softer than we had anticipated. We think that will start to recover. But it is a little bit of a surprise relative to what we were seeing a year ago.

Commercial aftermarket is doing very well. That's up from where we would have anticipated it would be. And we think that strength will continue. We're not anticipating that it will get much stronger as we look into the next quarter. But overall, for the year, it's up very nicely and it's stronger than what we would have thought 12 months ago or even 6 months ago. So we're now looking at a full year on the commercial aftermarket of just north of $100 million. That's down from, if we go back to '19 and kind of the last full year, $140 million. So it's still down, call it, 30% from what it was at the peak in '19. But it's starting to do much better.

And we have run rate now in that kind of mid-$25 million to $30 million range versus run rate last year in the second half of $20 million. So we're up $5 million, $6 million, $7 million on average a quarter on a $20 million base, call it, a 30% increase as we look in the last back half of this year. So that's a real positive. I think hopefully, there's still room to run, particularly as the wide bodies get back into service. But overall, it's a nice story.

[Operator]

[Operator Instructions] Our next question comes from Mike Ciarmoli with Truist Securities.

[Mike Ciarmoli, Truist Securities]

Can we just stay on that military aftermarket? I mean, as you're looking at it, I mean, obviously, taking into consideration what you just said with sustainment budgets and ordering down. Do you think there's any read-through to future fleet planning and reductions in some of the legacy programs that might be a driver here? And could this become more of a secular trend on the military aftermarket, especially across some of those legacy rotor programs and maybe legacy fixed-wing?

[John Scannell, Chairman & CEO]

I don't know, Mike, is the answer. I wish I did. I think as you look across your universal companies, if we're an outlier in it, then I'm going to assume that it's more a fact of the amount of build-up on our particular types of programs. As I said, it's across a broad range of programs, both domestic and foreign. So it's not an idiosyncratic thing that it's just on the F-35 or the V-22 or you pick the platform. It's really across a broad range of programs.

We do think some of it has to do with, as I say, inventory adjustments at our customers. And therefore, we will start to see a little bit of a recovery. But I don't know. One of the things that the theories that we used to have years ago that my friend, Bob Brady, used to explain was when defense spending slows, oftentimes it slows in the aftermarket first because they just reduced the op tempo withdrawing from our activities in Afghanistan. And so there may be a sense of that need for readiness maybe just coming out the boil a little bit and therefore, you start to see this reduction in inventories.

We don't lose any business in this, Mike. This is -- if there's a V-22 repair, we do it. If there's a F-35 repair, we do it. So it is in no way a reflection of the way the company is operating. It's just that there's -- the incoming orders are lower than we've seen a year ago. So very hard to tell. I mean we're feeling like it will jump back up a little bit, but time will tell.

So I really don't know the answer to that question, and it's a very difficult question, I think, to get an answer to apart from a look across all of your industries. And if nobody else is seeing it, then my assumption is what we have is just a blip and we'd see a recovery over the next few quarters.

[Mike Ciarmoli, Truist Securities]

Got it. Got it. And then just back to the space margins. I know you talked about some of the funded development. But were there any big new wins in the quarter or material changes that kind of just snuck upon you here? And maybe could you elaborate on some of the programs?

[John Scannell, Chairman & CEO]

No. Yes, there was nothing dramatically new, Mike. As I mentioned in the text, it was, give or take, a 200 basis point hit to the quarter because of some of the space programs. So if you look at our space business over the last couple of years, it has grown dramatically. As a result, we've hired a lot of new folks, as you can imagine.

And a little bit of what we discovered as we start to bring people back to the office and they're all sitting around is that they're working through the EACs on programs that, that in experience and that lack of relationships perhaps is leading to not realizing some of the potential costs before a program gets finished.

And so you do a relook at some of these problems. And it wasn't a big number, and it was across several programs. So it wasn't like there was a big issue with any one particular program. It was more a refinement, I would say, of our earnings at completion or cost at completion and attributable to the fact that we've just added a lot of staff in a very exciting business over the last 2, 3 years. And some of those [gray beers] that are around, they're just not as many of them on some of these newer programs.

So I think it's -- could we have anticipated it, you always look back into say, geez, we probably should have anticipated. What happens as you bring in some of the more experienced folks into the room and suddenly you discover home. There's a little bit more there to do or a little bit more here. So it's not something that I would worry about. It's just a reflection of a business that has really grown very quickly, and we've added a lot of staff over the last couple of years.

[Mike Ciarmoli, Truist Securities]

Got it. And then just the last one. I know you talked about the plus or minus $0.30 range for the fourth quarter and you mentioned the Delta variant inflation, I guess, on supply chain. I mean, I would think you'd have more of that locked in kind of with 2 months left here. Is there -- I mean, is that -- is there anything else, any other factors there? Can some of these items you called out really whipsaw your expenses or deliveries to that extent here in the next 2 months?

[John Scannell, Chairman & CEO]

So I just want to be clear, Mike, it's plus or minus $0.15. It's a $0.30 margin, you're right, but it's plus or minus $0.15 up to $5, just in case there's any misunderstanding on the call. And historically, we would have done plus or minus $0.10. And I think if you look at the macroeconomic situation that we all find ourselves in, there is more uncertainty than I would say, in a historical situation pre-COVID. It's a wide range. I would agree with you on that. On the other hand, I think it's trying to reflect there is uncertainty across the business.

This quarter where we said $1.16, plus or minus $0.15, we came in at $1.12. We booked a couple of -- probably about $0.10 worth of charges on the space business. So you could say, well, there you go, there was something unusual there that otherwise we might have come in a bit above our midpoint.

So it's really just trying to reflect, Mike, there is uncertainty out there. And I'll give you an example. If supply chain hiccup, I don't see it. I'm not sure what it would be. But that could have -- if you certainly couldn't get, you've seen the auto company shut down factories. I don't anticipate that happening, but something like that could have a material impact on the business. Deliveries receipts, a lot of our business on the -- under ASC 606 is based on material receipts, if for some reason, the vendor had an issue, that could happen.

So we're trying to be cautious. We're trying to make sure that we are guiding to a reasonable midpoint. But I think it's important to understand the range of things that can happen in the business. So that's why we did it, Mike. It's as you say, it's larger than you might like. But I think it is -- there is significant uncertainty that could occur within the next -- and we guide to the end of the quarter, not 2 months left to go, Mike, just so you understand.

[Operator]

Our next question comes from Cai von Rumohr with Cowen.

[Cai von Rumohr, Cowen]

Yes. I guess we've neglected to ask, give us some more color on the space charges, those $0.10. What programs were they on? Are they fixed price contracts? Are they near the end? What sort of risk do they represent going forward?

[John Scannell, Chairman & CEO]

So Cai, it's a couple of different programs. It's not one program. There's several programs. And as I think I was trying to explain to Mike, part of this is a lot of new people. We're engaging in expanding that business. We've talked about more integrated space vehicles. So we're engaging in kind of newer areas with the newer people. And so some of the experiences that we've gained over the years just don't transfer when you got everybody working from home and a lot of new people on the program.

And as we came back and we started to look at them again, we see, well, there's some cost growth in these. None of the cost growth, if you take $4 million across multiple programs, these are not very large numbers in the scheme of things. It's an adjustment. There's a variety of programs. I won't go into specific programs. But it's -- they are fixed-price programs that you have an earnings of completion. So they're fixed price programs. But it's not the type of cost growth that I would worry about.

[Cai von Rumohr, Cowen]

Okay. And were they booked into R&D?

[John Scannell, Chairman & CEO]

No. Those will be -- when you take a charge like that, it will be against sales and cost of sales.

[Operator]

At this time, I am showing no further questions. I would now like to turn the call back over to management for closing remarks.

[John Scannell, Chairman & CEO]

Carrie, thank you very much indeed. Thanks to our listeners. I hope you all remain safe. I hope everybody is enjoying some more freedom and getting back to a summer that we can enjoy this year. And we look forward to coming back to you in 90 days' time at the end of our fiscal year. Thank you.

[Operator]

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.